In this paper we investigate the causality of liquidity in a three-country framework. Due to evidence that liquidity is of greater importance during crises and to provide a deeper insight into the dynamics of liquidity shocks between the United States, Germany, and the United Kingdom, we estimate a Markov-switching vector autoregression model and calculate impulse response functions for different economic states. Indeed, we find liquidity spillovers to be more pronounced during unstable periods and identify the leading role of the United States. Moreover, we use numerous macroeconomic and financial market variables to analyze the specific factors behind liquidity. The overall economic outlook and the condition of the U.S. financial market turn out to be important.

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